Hedge Ratios in South African Stock Index Futures

Stavros Degiannakis and Christos Floros

Journal of Emerging Market Finance, 2010, vol. 9, issue 3, 285-304

Abstract: This article examines hedging in South African stock index futures market. The hedge ratios are estimated by six econometric techniques: the standard OLS regression, simple and vector error correction models, the ECM with generalised autoregressive heteroskedasticity (GARCH), as well as time-varying CCC-ARCH and Diag-BEKK ARCH models. The empirical results show that the ECM-GARCH model (capturing volatility clustering) provides best hedging ratios, while CCC-ARCH is superior to OLS, ECM and VECM. We conclude that there is not a unique model specification for measuring hedge ratios. For each market (emerging and mature), a model’s comparative analysis must be conducted in order to extract the best performing model.

Keywords: JEL Classification: G13; JEL Classification: G15; Hedging; hedge ratio; futures; SAFEX; OLS; ECM; VECM; GARCH (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:9:y:2010:i:3:p:285-304

DOI: 10.1177/097265271000900302

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